IRS, Treasury Finalize Tech-Neutral Clean Energy Tax Regulations
TL/DR –
The IRS and Department of Treasury have published final regulations on the “clean electricity production credit” and “clean electricity investment credit,” collectively known as the Tech-Neutral Tax Credits. The regulations apply to facilities in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025. Notable changes and clarifications include a clarification of lifecycle analysis for greenhouse gas emissions, the addition of a limited facility-aggregation concept for a one-megawatt exception, the confirmation of no de minimis exception to zero greenhouse gas emission requirement, the removal of the requirement that hydrogen storage assets only be eligible if the hydrogen stored is used for energy production, and a clarification on the definition of thermal energy storage property.
IRS and Treasury Department Final Regulations on Clean Electricity Tax Credits
On January 15, 2025, the Internal Revenue Service (IRS) and the Department of the Treasury published final regulations surrounding the clean electricity production credit and the clean electricity investment credit, known collectively as the “Tech-Neutral Tax Credits”. These replace the legacy production and investment tax credits, adopting similar principles and offering guidance on the innovative, technology-neutral aspects of the new credits.
The IRS and Treasury initially proposed regulations on the Tech-Neutral Tax Credits on May 29, 2024, as seen here. The final regulations largely uphold these proposals, with key differences highlighted below.
Generally, the final regulations apply to qualified facilities in operation after December 31, 2024, and during a taxable year ending on or after January 15, 2025. For rules regarding the aggregation of property for the one-megawatt exception, the final regulations apply to facilities in operation during a taxable year ending after January 15, 2025, whose construction begins after March 17, 2025.
Key Changes and Clarifications
- Clarifications on conducting the lifecycle analysis for greenhouse gas (GHG) emissions for electricity-generating technology.
- Addition of a limited facility-aggregation concept for the one-megawatt exception to wage and apprenticeship rules.
- Confirmation of no de minimis exception to the GHG emissions rate of not more than zero for a qualified facility for purposes of the Tech-Neutral PTC.
- Elimination of the requirement for hydrogen storage assets to be used solely for energy production to qualify for the Tech-Neutral ITC.
Statutory Background – Section 45Y and 48E
The Inflation Reduction Act of 2022 replaced the Legacy Tax Credits with the Tech-Neutral Tax Credits for facilities in operation after 2024. The distinguishing factor between the Legacy and Tech-Neutral Tax Credits is their method of determining eligibility for a specific technology. The IRS is required to publish an annual table of technologies that satisfy the Zero GHG Requirement for the Tech-Neutral Tax Credits.
Accompanying the final regulations, the IRS released the first annual table of eligible technologies, which currently includes eight technologies. The Tech-Neutral Tax Credits will begin to phase out after 2032 or when Treasury determines that GHG emissions from electricity production are no more than 25% of 2022 levels.
Further Information
The final regulations further clarify the lifecycle analysis methodology for GHG emissions and how taxpayers can petition for a provisional emissions rate. They also elucidate the rules regarding the aggregation of properties for the one-megawatt exception.
Certain elements, such as a de minimis exception for GHG emissions and a dual-use rule for the Tech-Neutral ITC, are confirmed to not exist within the final regulations. Additionally, an incremental cost rule is introduced for equipment serving both qualifying and non-qualifying purposes.
The regulations also detail the treatment of electricity sales to related persons, qualified interconnection costs, facility expansions and the 80/20 rule, clarification of thermal energy storage property definition, and the categorization of fuel cells and hydrogen storage.
The final regulations are subject to the Congressional Review Act, which requires their submission to Congress for approval before they can take effect.
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